2004

Agincourt has acquired the Wiluna gold mine which has been producing about 117,000ozpa at cash operating costs of up to A$420/oz since SQ02. However, it can be transformed under AGC within 2 years to produce >140,000ozpa at cash operating costs of possibly <A$350/oz, from a combination of reopening the East-West >6g/t U/G Lodes replacing low grade 1.2g/t stockpiles, and higher oxide or other non-refractory feed from a number of prospects.

Apart from the prospects under the salt lake south of the mine (such as Regent and Williamson), there are other regional oxide prospects too. The old Wiluna mine has also been sparsely drilled at depth and most of the orebodies are open on strike and at depth. The expanded Wiluna mill is also very versatile, and can be subdivided back into a non-refractory (say oxide) and refractory (the biox) plant at minimal expense while achieving higher throughput and lower costs.

AGC appears to have a very high grade virgin orebody under the salt lake south of the mine, namely Williamson that so far has only been considered as a bulk lowgrade proposition, but potentially could be a materially profitable >10g/t operation if mined as relatively narrow high grade quartz veins (like the historic and current Wiluna underground), with downhole intersections such as 3m @ 20.4g/t above vertically lower down 6m @ 26.4g/t.

AGC’s current expected value is about A$1.50 to A$2.00 per share (using the standard 5% NPV applied to gold shares, being A$1.70 or A$100m over 9 years on 58.3m fully diluted shares). However, it has a high sensitivity to grade (which could easily be 10% higher) and that alone could increase the value by ~35%.

Following the merger with Spinifex in October 2003, Gallery Gold now has two very advanced projects, namely Mupane in Botswana and Buckreef in Tanzania. Mupane is the most advanced, having completed its BFS and is currently in construction with gold production expected to commence from October 2004.

Mupane expects to produce about 100,000ozpa to 120,000ozpa from treating 1.0mtpa at reserve grades of ~3.5g/t in mineralisation up to 70m wide. Examination of the sections in detail, shows that higher grades could be achieved from selective mining, and a higher grade core could result in underground mining extensions.

Gallery Gold is currently upgrading the resources of its newly acquired Tanzanian prospects and projects from Spinifex into JORC classifications, and then prioritising their development, focusing initially on Buckreef, Kitongo & Nyakafuru.

Gallery Gold’s properties surround Africa’s current major nickel province being LionOre’s Phoenix and Selkirk Tati nickel mines in Botswana. GGN has entered into a joint venture with Albidon Ltd (ALB, a Ni-PGM exploration IPO, listing in March 2004). GGN retain a 50% interest in most of its Tati nickel properties and a 35% interest in the Tekwane PGM prospect that is contained in the Selkirk gabbro.

GGN currently appears to be fairly priced based on a 5% NPV of A$0.24/share (including $35m for Spinifex’s net value) and a gold price of US$400/oz. However, Mupane’s grades and unit mining costs appear to be conservative, such that 10% higher grades can increase the NPV to A$0.32/share, and the Tanzanian assets should be capable of realising more, apart from the Botswanan potential.

The IPO Offer : Albidon Limited (ALB) offered a subscription of 20m shares at 50c to raise up to A$10m in an AIM listing and an additional 10m shares at 50c to raise up to A$5m in an ASX listing at the same time (the minimum subscription is 20m to raise $10m). ALB’s IPO is to develop its existing portfolio of relatively advanced nickel - PGM exploration projects in Eastern and Southern Africa, and copper-gold & zinc-oxide projects in North Africa.

Albidon have delineated an “S” shaped Ni-PGM sulphide trend through Eastern and Southern Africa which can be correlated with the global “Grenville Trend”. The “Grenville Trend” is based on a comparison with the host rocks of Voisey Bay in the Middle Proterozoic – a geological era well known for hosting a number of the world’s famous metallogenic provinces. ALB’s Ni-PGM sulphide trend starts at Barrick/Falconbridge’s Kabanga Nickel project in Tanzania, and passes through Malawi and Zambia before reaching the Tati area of Botswana.

ALB have established a number of projects along the trend and explored them to some degree since 2000 to result in projects that range in maturity from delineated resources through drill-ready to almost virgin ground. The most advanced project is Munali, about 60km south of Lusaka in Zambia which has an existing resource over its SE corner, (that may still require further interpretation) with encouraging intersections such as 15.5m (~7m true width) at 2.1%Ni and 2.6g/t PGM.

There are three joint ventures namely with Gallery Gold in the Tati Ni-PGM region of Botswana (which has aeromag completed and delineated targets), with WMC Resources over Mpemba Ni-PGM in Malawi, and with BHP Billiton over Trozza (Zn) in Tunisia. Munali Ni-PGM has also been a joint venture, with the Lion Selection Group’s African Lion Limited, who is the major shareholder in Albidon.

ALB also has a copper-gold project and zinc project in Tunisia, which like the other targeted project areas was delineated on the basis of adequate infrastructure, relative political stability, attractive fiscal regimes and demonstrated geological prospectivity.

Sino Gold currently has two main projects in Central China, being its Jianchaling operating gold mine in the Shaanxi Province and its Jinfeng project in Guizhou Province. There are a number of other projects mainly in Northern China that are at various stages of acquisition and exploration.

Jianchaling has been winding down from 100,000ozpa in 2002 to possibly only 50,000oz in CY2004. Extensions to its life and potential increases to its production appear to be almost certain with 5 gold target areas being explored, however, at this stage their eventual actual outcome is almost impossible to predict.

Jinfeng is in the process of completing its feasibility study, which with over 3moz in resources and extensions to the stratabound mineralisation with intersections up to 59m @ 8.6g/t infers that board approval should be a formality. Gold production is expected to commence in early 2006 and build up to 200,000ozpa during that year.

Apart from potential success and ultimate production in its other joint venture projects in Shandong Province with Gold Fields, and over White Mountain in Jilin Province, SGX is at the negotiation stage in its “China Review Project” to obtain one or more joint venture agreements on non-refractory (free milling) gold projects that could be finalised in 2004, and which could then be brought into production.

Pan Australian Resources NL (PNA) – Starting Gold (and later Copper) Production in Laos from March 2005

PNA is still relatively on-track for the targets it gave in July 2003, with the BFS on the Phu Bia Gold Project expected to be completed in July 2004, and 1.5mt to 2.0mtpa heap-leach initial production from the Phu Kham (PK) gold cap targeted to commence at 50,000ozpa to 70,000ozpa during the first quarter of 2005.

For the Phu Kham copper-gold orebody, the current concept is to complete the BFS by mid-2005, for a 9mtpa to 12.5mtpa operation producing >60,000tpa copper and >50,000ozpa gold or so in concentrates, starting possibly by mid-2007.

Both Projects have the capability of producing higher grades in their initial years, which could result in higher production, improved cashflows and lower pay-back times.

The Phu Bia Gold heap-leach plant is expected to be located between the PK gold cap and the Long Chieng Track (LCT) gold deposit. LCT is expected to be treated after the gold cap, followed by Ban Houayxai (BH). Gold resources as at 4 June 2004 are 570,000oz, and are expected to be upgraded further from the current drilling of the gold cap resulting in revisions to the BFS in July, and ahead of final pit designs in September 2004.

Construction has been timed to occur between the “wet” seasons. With all approvals expected to have been received by mid-October 2004, so that main construction can occur from October 2004 to January 2005, stacking of heaps in February 2005, and the first gold pour in March 2005.

The recent intersections at Williamson, so soon after the Calais discovery illustrate the impact that the Agincourt management team is having in transforming the old Wiluna mine into a potentially long life asset with significant production growth.

The approval of the East-West Lode project takes Agincourt over 130,000ozpa, add Calais and 150,000ozpa is attainable, add Williamson and other properties and AGC could be heading towards 200,000ozpa. Our modelling shows that the mills can be kept full just on refractory ore, and treating Williamson could then be achieved through a separate 0.4mtpa or larger mill, and that results in ~200,000ozpa.

Calais appears to be a high grade (~10g/t or so) link zone between East Lode and Woodley, extended over 1km on strike and open at depth. It consequently has the potential to become a classic 600,000oz to 1moz Wiluna – type orebody, and depending on the deeper intersections, could even exceed 1moz.

Williamson’s transition zone was historically essentially overlooked due to drilling difficulties with the lake rig, whereas from the Causeway access, RC drilling has already produced material intersections such as 36m @ 3.6g/t incl 16m @ 6.75g/t in the transition zone, which could result in a significant non-refractory source of ore.

Heritage have recently completed a scoping study which focused on the mining viability of the Talisman mine within the Karangahake Project, and resulted in a conceptual relatively small underground operation treating ore at an average grade of 13g/t and producing 50,000ozpa from late 2006 / early 2007.

Heritage have made significant progress in the past year and recently announced initial indicated and inferred JORC gold resources of almost 110,000oz (335,400t @ 10.2g/tAu & 40.7g/tAg) in the old Talisman mine, as part of the completion of Phase 1. HTM have already started on their Phase 2 aimed at defining a 300,000ozgold equivalent resource on which to base a preliminary feasibility study.

Consequently HTM are in the process of refurbishing part of the old Talisman mine and have focused on the adit accessing the 8 Level Maria Lode (and extension on strike to the BM37 cross-cut), with its link through a main cross-cut into (and on the same elevation due to a different numbering system) 5A Level Crown/Welcome Lode. The main cross-cut also passes through the Mystery Lode, which has little historical record, but also appears to contain mineable resources.

The BM37 cross-cut was renowned in the early 1990s because of its intersection of 1.8m @ 682 g/t gold and 2,094 g/t silver, with grab samples reputedly up to 1.4% (13.8kg/t) gold. It had been overlooked because it lies in the Dubbo shoot or section which was historically regarded as unpayable. While the BM37 area has been partly “grab-mined” before the previous mine closed in the early 1990s, it appears to have been barely touched from a mining viewpoint.

Apart from the old Talisman section, there appears to be a number of potential ore sources within Karangahake and its adjacent region, based on the examination of the mine plans, extensions on strike north-east beyond Taukani Hill to Rahu, and south-west into the Dominion Knoll region.

At Rahu (north-east on strike from Karangahake) and following a conceptual downthrown model, HTM are drawing parallels between the similar geological setting, geophysical resistivity anomalies and delineated vein structures of the Favona discovery near the Martha Mine, to the geological setting and resistivity anomalies at Rahu. Some initial drilling has found encouragement.

The approved restructure of Laizhou Jincheng Gold Mining Company (the primary vendor of the BioGold Facility) into a private company by the Laizhou City Government in June 2004, has advanced MIC into the final approval stages.

The submission of the final financial audit to June 2004 by Deloitte, Shanghai in mid-August 2004, infers that final approval (MOFCOM and SAFE) at the Shandong Province level to acquire 82% of the BioGold SFJV and hence the BioGold Facility is expected to be attained within the next 3 months to the end of November 2004.

The required acquisition cost of ~A$12m for 82% of the BioGold Facility is being met from a combination of MIC’s own cash, the almost $4m BacTech agreement at $0.13 per share and a $6m Convertible Note facility (expected to be at least $0.13 per share) with the LinQ Resources Fund (prev Rothschild Golden Arrow Fund).

On attaining final approval, MIC becomes entitled to up to 20% of the spot gold price for 82% of the ore being treated through the bacox and cyanide leach circuits, currently of 140,000ozpa to 160,000ozpa, but increasing to a rated 200,000ozpa, and expected to expand further beyond that.

MIC can also attribute 51% of 82% of the 300,000ozpa in dore treated at the refinery (on which it only receives a marginal profit), received from processing through the bacox and cyanide leach circuits and ~100,000ozpa purchased dore.

Virtually nothing currently appears to be being ascribed in MIC’s share price to the Shandong Exploration SFJV with Laizhou Jincheng in which MIC has an LOI to earn a 51% interest in any JV areas below 500m from surface. Based on a visit to Dongji (one of the current four mine properties), the mineralisation (which can be significant) appears capable of continuing deeper there from the last intersection of 5m @ 18.2g/t, already about 480m below surface.

Minotaur Resources Ltd (MNR) –Prominent Hill Now in Oxiana’s Production Schedule for Commissioning in late 2007 / early 2008

Oxiana Limited (OXR) gave a detailed presentation (which we attended) in Adelaide on 26 August 2004, on their expectations for MNR’s Prominent Hill initially averaging 90,000tpa copper and 110,000ozpa gold from 2008, and its inclusion within OXR’s production schedule on the basis of owning 100% of it.

OXR envisage completing an infill drilling programme/pre-feasibility study at a cost of $5m within 9 months to June 2005, earning them 35% of Prominent Hill. Followed by spending $25.5m (to earn 65%) during an up to 12 month full feasibility study and then 18-month construction period leading into 7.5mtpa open-cut production for up to 5 years from late 2007 / early 2008.

The estimated capex of A$350m does not include the potential 200,000oz (or more) gold halo surrounding, and gold mineralisation east of, the copper-gold orebody, which could reduce the outlay by at least $50m, pay for the 100m to 120m pre-strip and result in gold production during 2007. The capex may also be reduced by SA Government concessions and/or offtake agreements from China or elsewhere.

MNR’s share price has risen close to the conceptual value of $1.65/share that was based on capex of $200m in ERA’s October 2003 report. The usual “rule of thumb” for a project’s approval is to at least achieve the required capex as the NPV (at 10% or 12% and being in Australia, there is no political risk). Consequently, capex of $350m infers that MNR’s market cap has a minimum capability of $123m or $2.35 per share, implying that it could trade between $1.50 and $2.10 per share.

The inclusion by OXR of 100% of Prominent Hill in its new forecasts (it was included at 65% in OXR’s presentations around 5 August 2004) does enable OXR to achieve its stated 5-year targets of producing 200,000tpa of copper and 500,000ozpa in gold, and could infer that at some stage OXR may make a takeover bid for MNR. Such a bid could occur by May 2005 ahead of completion of the prefeasibility study, and possibly be in the form of scrip or scrip and cash.

Berkeley has so far established two joint ventures in the Jiaodong Peninsular which is located in the eastern Shandong Province of China, being Ao Xin (an approved SFJV with the Shandong HeXi Gold Mining Group) in western Jiaodong, and Jin Xin (an applied for business licence with the 3rd (Geological) Brigade of the Shandong BGMR (Bureau of Geology and Mineral Resources) in eastern Jiaodong.

The first drilling programme has commenced in the Ao Xin JV over the Xin Zhuang prospect which is defining the gold mineralisation under alluvial cover on the primary Jiao Jia fault structure. There are numerous operating gold mines along the exposed Jiao Jia fault structure, and east and west of where the Jiao Jia fault goes under the alluvial cover. BKY are drilling a section between those mines.

The Xin Zhuang prospect covers a flexure in the Jiao Jia fault, which bears some resemblance to HeXi’s primary 1.2moz operating mine that lies on a flexure in a secondary fault east of the Jiao Jia primary structure. The initial drilling has produced similar core to HeXi being up to 8 to 9% pyrite in potassium altered (red/pink coloured) granite. However, initial intersections have only been in the

0.7g/t to 2.0g/t vicinity. HeXi has a complex multiple stacked lode system, and these intersections could still be representative of a similar system.

On receipt of the business licence, the Jin Xin JV with the 3rd Brigade expects to focus on 3 (of the 8) properties being Shen Shan (containing Kong Xi Shan), Liu Shui Tou (containing the conglomerates), and Ying Wu Shan (containing Wen Deng). All are based on semi defunct gold mine operations, which have had some surface mining and occasional shallow underground mining.

With the lowest market cap (at less than half of the next lowest) of its Australian gold company peers in China as shown in Table 1 on page 6 of this report, BKY’s share price could easily suddenly increase.

Dragon are currently completing construction of their first gold mine in Scandinavia, being their 80% owned Svartliden in northern Sweden commencing in the December Quarter 2004 at an expected production rate of 65,000oz to 70,000oz and cash cost of ~US$190/oz in the first year of the project, based on treating 300,000t at 7.2g/t. Production has been estimated to average 55,000ozpa at cash costs of ~US$230/oz over the mine’s current 5-year life.

This is expected to be followed by the wholly owned Vammala operational centre (comprised of Orivesi and Jokisivu) in SW Finland. Exploration is currently extending the reserves and resources at Orivesi, while delineating the extent of Jokisivu for a decision to mine to be made in December 2004. Should the expected approval be given, then production at 60,000ozpa to 80,000ozpa could commence perhaps as early as July 2005 at cash costs of ~US$210/oz.

Pampalo in SE Finland could become the third operation for Dragon possibly from mid-2007 at production of 40,000ozpa to 50,000ozpa or so. Resources of almost 200,000oz (0.9mt at 6.9g/t) have been established, and deepening of the decline and establishment of the drill positions for deeper extensions has commenced. There are a number of smaller resources amongst nearby possible satellite operations.

Our 5%NPV for Dragon is A$0.30 per share based only on the above 3 potential operations and not giving any credit for the number of other, mainly Finnish, exploration properties that could also become operations. It should be noted that the mine lives should be longer, and our modelled grades could easily be more than 10% higher (each 10% increase in realised grades currently adds A$0.09 to the NPV)

Michelago Limited (MIC) – Heading for Attributable Gold Production of 215,000ozpa based on 50% ownership of Gold Ridge and its BioGold SFJV (once approved) in China

On 29 November 2004, MIC announced that it has become a 20% shareholder in a consortium to acquire the Gold Ridge mine in the Solomon Islands from the American Home Assurance Company (AIG), with a strategy to acquire an additional 30% in the ASG consortium and fund 50% of the acquisition.

As part of the funding, MIC has placed 200m shares at 10c (with a 1-for-2 free option at 15c to December 2006) to raise A$20m subject to shareholder approval in late December 2004. The A$20m is to be used to pay the first funding requirement of A$13m (US$10m), $6m as part of the entry into the BioGold SFJV and A$1m for general working capital.

The ASG (Australian Solomons Gold P/L) consortium estimates that up to US$90m could be required to purchase the Gold Ridge mine and return it to production of 150,000ozpa for 10 years from the second half of 2006, based on 2.3moz of resources and 1.7moz of reserves as at June 2000.

Gold Ridge operated successfully for almost 2 years before it was suspended in unrest following a coup in June 2000. However, the intervention of the Regional Assistance Mission to the Solomon Islands has since restored sovereign stability, and aid has been injected to significantly improve the Islands’ infrastructure.

With 75,000ozpa for 10 years and 82% (after SFJV approval) of BioGold’s 170,000oz (ahead of the expansion), MIC could be able to attribute 215,000ozpa of production from 2006. There is a further 51% of 82% of 90,000ozpa from the gold refinery, although margins on dore are almost negligible at 1%.

Conceptually Michelago’s market cap could increase to over $200m representing an almost doubling of its current share price of about 10 to 11c. Our target of >20c for MIC remains, rating it as a SPEC BUY.

On 9 November 2004, Oxiana Limited (OXR) announced that it had reached an agreement to takeover MNR by a “scheme of arrangement” in which MNR shareholders would receive 1.85 OXR shares –for- 1 MNR share (representing the Prominent Hill assets and liabilities), and 1 MinEx (Minotaur Exploration share, representing the rest of Minotaur, at an estimated IPO of 40c/share)

Although we do recommend that MNR shareholders vote in favour of OXR’s offer when it occurs on its expected date in January 2005, it does beg the question as to what MNR is actually worth through OXR and MNR’s remaining assets. ( Note : We have never been commissioned to visit OXR’s operations. Consequently this report is based mainly on presentations, ASX releases, a visit to Pan Australian in Laos, and general knowledge).

MNR has been ascribed a value of A$2.29 per share in the OXR merger offer based on A$1.89 for OXR at about A$1.02 per share and 40c for MNR Exploration. However, our analysis infers that very little if anything has been included for Prominent Hill and instead the value appears to be closer to A$2.70/share.

OXR is a growth story, which MNR shareholders can access effectively from the first day of Sepon’s new copper production building up to 60,000tpa Cu at cash costs ~US$0.37/lb and a gold expansion to 230,000ozpa at cash costs of ~US$180/oz. Excluding Prominent Hill, OXR has 5-year targets of 400,000ozpa gold and 100,000tpa copper which appear to be attainable. Hence valuing OXR at A$1.02/share just on its Sepon assets appears to be conservative, especially if copper prices >US$1.10/lb are achieved.

Minotaur Exploration’s ascribed 40c (actually 42c) value is based mainly on its investment holdings in Mithril and Petratherm, plus the cash to be raised and net cash left within the company, hence valuing the exploration assets at a cost of only A$2.5m. Given the scope and expenditure being incurred on these numerous exploration properties, this appears to be very conservative.